5th Annual Tax Thread - 2007

[Winchester]

Originally posted by: EagleKeeper

Originally posted by: Winchester

Originally posted by: EagleKeeper

Originally posted by: Winchester
Can you explain how giving discounts work for taxes?

Ex. Company A gives Company B a discount on their services. Is the discount part a write-off?

The discount is just another way of stating a price adjustment for the unit.

Company A treats it as less income
Company B treats it as a lower capital/service cost or expense

I have read that you get a write off for the discount amount up to a certain percentage. Is that not true?

IRS Pub 334 - Chapter 6

Trade discounts.
The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. You must use the prices you pay (not the stated prices) in figuring your cost of purchases. Do not show the discount amount separately as an item in gross income.

An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount.

Cash discounts.
Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. There are two methods of accounting for cash discounts. You can either credit them to a separate discount account or deduct them from total purchases for the year. Whichever method you use, you must be consistent. If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. For more information, see Change in Accounting Method in chapter 2.

If you credit cash discounts to a separate account, you must include this credit balance in your business income at the end of the tax year. If you use this method, do not reduce your cost of goods sold by the cash discounts.

I knew there had to be something otherwise car dealers and stores would just state the price instead of (Price - instant rebate = actual price ).

I remembered seeing this from doing COGS from last year.

 

[lizardboy]

Originally posted by: EagleKeeper

Originally posted by: lizardboy
Question someone asked me at work today...wasn't quite sure what the answer is:

If a homeowner rents out a room in their house (i.e., has a roommate), do they have to report the rent received as ordinary income? If so, can they depreciate the "spare room" as they would a home office?

They are supposed to declare the rent.
Then they can also use Schedule E to depreciate the living quarters and expense off paid utilities & maintenance costs. A part of the Insurance can also be expensed off.

The percentage to use, can be based on sq footage of the room vs bedrooms, # bedrooms, or common sense.

Thanks Eagle.

 

[50]

Hello,

I'm 19 years old and have not had to worry about my taxes in the past because they have been deducted from my paychecks. However, this year I worked self-employed as a Real Estate Agent. I have no idea how to go about doing my taxes this year and do not want to get audited. I made less than $10,000 dollars this year and kept most of my receipts. My main problem is I can't work with a CPA because I go to school in georgia and I'm a Massachusetts resident. Is my best bet to buy tax software? I honestly have no idea how to file my taxes.

Also on a side note, I am in my second year in college, should I try to apply for the Lifetime Learning credit? I don't think my parents put me as the Hope Credit for last fiscal year. Thank you very much

 

[MrChad]

Originally posted by: BaNzaiDags
I have a question about health Savings ACC (HSA).
My girlfriend is pregnant and is Due in July. I'm starting an HSA this year, the baby will by my dependent, but she is under her own health plan
I was wondering if I could use my HSA to pay for her mediacal bills, I went to IRS.gov site and looked up publication 502 , I don't see why she wouldn't fall under qualifying relative.

my question is: Can i pay for her medical bills out of my HSA account?

"Qualifying Relative

A qualifying relative is a person:

1. Who is your:
1. Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild),
2. Brother, sister, or a son or daughter of either of them,
3. Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle),
4. Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or
5. Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law,
2. Who was not a qualifying child (see Qualifying child above) of any taxpayer for 2007, and
3. For whom you provided over half of the support in 2007. But see Child of divorced or separated parents, earlier, Support claimed under a multiple support agreement, next, and Kidnapped child under Qualifying Relative in Publication 501, Exemptions, Standard Deduction, and Filing Information."

Doesn't her health plan cover prenatal care?

 

[CPA]

Originally posted by: 50
Hello,

I'm 19 years old and have not had to worry about my taxes in the past because they have been deducted from my paychecks. However, this year I worked self-employed as a Real Estate Agent. I have no idea how to go about doing my taxes this year and do not want to get audited. I made less than $10,000 dollars this year and kept most of my receipts. My main problem is I can't work with a CPA because I go to school in georgia and I'm a Massachusetts resident. Is my best bet to buy tax software? I honestly have no idea how to file my taxes.

Also on a side note, I am in my second year in college, should I try to apply for the Lifetime Learning credit? I don't think my parents put me as the Hope Credit for last fiscal year. Thank you very much

tax software - yes

You will primarily use a 1040 and Schedule C. Sounds like you won't owe much if anything with that low of "revenue". I use revenue because now that you are self-employed, the money you make is revenue, the money you will be taxed on (after deducting your expenses) is your income. All of this is done on the Schedule C.

You don't apply for Lifetime Learning Credit, you take it, if you're qualified, on the 1040. The tax software will help you with it.

 

[50]

Thanks for the quick reply. I forgot to mention, I have been involved with stocks this year, although I have not made any profits (I've actually lost about 100 dollars). Do I need to record these as well? Thank you

 

[todpod]

We bought a house with the in-laws in 2004, we lived there until 2006 (should live with inlaws), the inlaws stayed until 2007 when we sold the house. Since we lived in the house 2 of the last five years we don't have to claim the income from the sale of the house (about $1000) correct?

 

[CPA]

Originally posted by: 50
Thanks for the quick reply. I forgot to mention, I have been involved with stocks this year, although I have not made any profits (I've actually lost about 100 dollars). Do I need to record these as well? Thank you

Yes, schedule D. You will want to include these because the loss can be used to reduce your income. Don't forget to include fees when calculating your loss.

 

[CPA]

Originally posted by: todpod
We bought a house with the in-laws in 2004, we lived there until 2006 (should live with inlaws), the inlaws stayed until 2007 when we sold the house. Since we lived in the house 2 of the last five years we don't have to claim the income from the sale of the house (about $1000) correct?

correct. you are allowed $500K exemption (married exemption, $250K single) on sale of home once every two years.

 

[jaybert]

meh, i calculated my personal exemptions wrong...for some reason I thought i qualified for head of household, which was wrong. Once I correct this, I should be looking at $3500 x 30% (or somewhere) extra I need to pay in taxes right?

 

[CPA]

Originally posted by: jaybert
meh, i calculated my personal exemptions wrong...for some reason I thought i qualified for head of household, which was wrong. Once I correct this, I should be looking at $3500 x 30% (or somewhere) extra I need to pay in taxes right?

exemptions and your standard deduction (head of household, single, married, etc) are not necessarily dependent on each other. The difference between head of household and single is only $2500. Not sure where you got $3500.

 

[EagleKeeper]

Originally posted by: 50
Hello,

I'm 19 years old and have not had to worry about my taxes in the past because they have been deducted from my paychecks. However, this year I worked self-employed as a Real Estate Agent. I have no idea how to go about doing my taxes this year and do not want to get audited. I made less than $10,000 dollars this year and kept most of my receipts. My main problem is I can't work with a CPA because I go to school in georgia and I'm a Massachusetts resident. Is my best bet to buy tax software? I honestly have no idea how to file my taxes.

Also on a side note, I am in my second year in college, should I try to apply for the Lifetime Learning credit? I don't think my parents put me as the Hope Credit for last fiscal year. Thank you very much

Second year of College should use the Hope Credit. It is more valuable - 50% of the costs vs 20%.

If your parents did not put in for the Hope last year on you, they may wish to file an ammended return for the credit. Let them know

 

[steppinthrax]

I guess I have a question regarding Legal fees or attorney fees. My wife had some immigration troubles where she had to leave the US and return. In the process of this we've paid some money to an attorney and had to pay the cost of a plane ticket and visa processing fees needed in conjunction for her legal immigration problem. Is there any method of justification that this can be written off.

 

[EagleKeeper]

Originally posted by: steppinthrax
I guess I have a question regarding Legal fees or attorney fees. My wife had some immigration troubles where she had to leave the US and return. In the process of this we've paid some money to an attorney and had to pay the cost of a plane ticket and visa processing fees needed in conjunction for her legal immigration problem. Is there any method of justification that this can be written off.

None that I am aware of.

It was a personal choice, not an business related choice.

Sorry for stating it bluntly, but that is the way the IRS would look at it.

 

[steppinthrax]

Originally posted by: EagleKeeper

Originally posted by: steppinthrax
I guess I have a question regarding Legal fees or attorney fees. My wife had some immigration troubles where she had to leave the US and return. In the process of this we've paid some money to an attorney and had to pay the cost of a plane ticket and visa processing fees needed in conjunction for her legal immigration problem. Is there any method of justification that this can be written off.

None that I am aware of.

It was a personal choice, not an business related choice.

Sorry for stating it bluntly, but that is the way the IRS would look at it.

But legal fees in general (those paid to an attorney) can be deducted. From what I understand.

Could you just put it down and then when (if) you get audited you simply try to defend it. Considering she is my wife and I had to pay these moneys to clear her name.

 

[CPA]

Originally posted by: steppinthrax

Originally posted by: EagleKeeper

Originally posted by: steppinthrax
I guess I have a question regarding Legal fees or attorney fees. My wife had some immigration troubles where she had to leave the US and return. In the process of this we've paid some money to an attorney and had to pay the cost of a plane ticket and visa processing fees needed in conjunction for her legal immigration problem. Is there any method of justification that this can be written off.

None that I am aware of.

It was a personal choice, not an business related choice.

Sorry for stating it bluntly, but that is the way the IRS would look at it.

But legal fees in general (those paid to an attorney) can be deducted. From what I understand.

Could you just put it down and then when (if) you get audited you simply try to defend it. Considering she is my wife and I had to pay these moneys to clear her name.

I'm not sure when legal fees can be deducted other than they relate to a child adoption or were needed as part of a work requirement (itemized subject to 2% floor) - ie, you paid legal fees because your wife had to redo he visa papers. This doesn't sound like that.

 

[Maximus96]

I have a question about child care expenses. My wife and I currently pay my wife's mother to take care of our 2-year-old and 6-month-old daughters during the day. I figured the total payment made to her this year is $6300.00. However, most of these monthly payments were cash and a couple was thru bank transfers so I have no receipt of any kind. Also my wife's mother is not filing and is claimed as a 'dependent' on my wife's brother's taxes. I don't want to get her mom into trouble but is this something I can claim as a credit? If so, how much credit can I claim?

Thanks so much!

 

[CPA]

Originally posted by: Maximus96
I have a question about child care expenses. My wife and I currently pay my wife's mother to take care of our 2-year-old and 6-month-old daughters during the day. I figured the total payment made to her this year is $6300.00. However, most of these payment were cash and a couple was thru bank transfers. Is this something I can claim as a credit? If so, how much credit can I claim?

Thanks so much!

You can claim it as part of Schedule 2441 - Child and Dependent Care Credit. It will be limited by the ceiling and/or your annual income. But, be careful, you will have to include your mother's name, address and SSN. She will, then, have to file this as income. Now, she may not have to pay any taxes on it depending on her individual situation, but you need to talk to her to make sure she files. The IRS can and many times will crosscheck to see if the provider you listed reported income. She will have to file a Schedule C.

 

[Mermaidman]

I made an online cash donation to a charity on 12/31/07, but the charge did not appear on my credit card until 1/10/08! I have a thank-you email from the charity dated 12/31/07, but it doesn't state the donation amount.

So, is this contribution deductible for 2007 or 2008? Thanks in advance.

 

[episodic]

Is there some easy way I can figure my rough tax liability if I know my wife's income, my income, have my last paychecks, and know what I'm going to get on a 1099 form, as well as having one dependent?

 

[EagleKeeper]

Originally posted by: Mermaidman
I made an online cash donation to a charity on 12/31/07, but the charge did not appear on my credit card until 1/10/08! I have a thank-you email from the charity dated 12/31/07, but it doesn't state the donation amount.

So, is this contribution deductible for 2007 or 2008? Thanks in advance.

You are good for 2007

 

[EagleKeeper]

Originally posted by: Maximus96
I have a question about child care expenses. My wife and I currently pay my wife's mother to take care of our 2-year-old and 6-month-old daughters during the day. I figured the total payment made to her this year is $6300.00. However, most of these monthly payments were cash and a couple was thru bank transfers so I have no receipt of any kind. Also my wife's mother is not filing and is claimed as a 'dependent' on my wife's brother's taxes. I don't want to get her mom into trouble but is this something I can claim as a credit? If so, how much credit can I claim?

Thanks so much!

In addition to CPA's response, when she declares the income, it may also affect her filing status as an dependant.

that income coupled with potential SS and/or pension could place her outside the dependant status

 

[SarcasticDwarf]

If you have a sole proprietorship, is there any reason you should have it show a positive income? I recall hearing that you should not have it show a loss for more than three years in a row or something like that.

Note: This is in the area of $5k and the amount of loss is in the area of $500 simply because there always tend to be a lot of expenses at the end of the year.

 

[pmoa]

It says that if I commute to class if it is enhancing work I can deduct the mileage? Is it just the mileage from work to night class?

 

[CPA]

Originally posted by: SarcasticDwarf
If you have a sole proprietorship, is there any reason you should have it show a positive income? I recall hearing that you should not have it show a loss for more than three years in a row or something like that.

Note: This is in the area of $5k and the amount of loss is in the area of $500 simply because there always tend to be a lot of expenses at the end of the year.

The IRS will consider a business a "hobby" (and thus schedule C losses are no allowed) if can't show taxable income in 3 out of 5 years, or failing that, you fail what they call the factors and circumstance test. The test basically determines whether or not you treat the activity as a business or not - time, effort, recordkeeping, advertising, what you've done to try to make the business a success, etc are reviewed.

Just because you show a loss for 3 years in a row does not mean you don't have a business. Remember, things such as depreciation, amortization and other non-cash events can make a profit into a loss.